Two possibilites I can see from reading Jerry W's thesis:
Itermediate One Way Clutch
Symtoms: No 1-2 shift or no 3rd and 4th gear. A failing one way clutch will cause a late 1-2 shift that finishes with a big bang, or will allow the engine to run into the rev limiter at WOT.
What Models?: All AODE and 4R70W's built before 1998
Problem: This design one way clutch is not suited for this environment.
Solution: Install the mechanical diode one way clutch. This part is almost bullet proof.
OR
No 3rd or 4th gear
Problem: The direct clutch is burnt up. This could have been cause by a bad intermediate one-way clutch, or could have just burned up.
Solution: Rebuild
Have your friend read this info - It will help him diagnose problems, or can help him rebuild that trans with the right parts:
Ford OD Transmissions 101 - Jerry's mod